2011 (11) TMI 319 - AT - Income Tax

Validity of assessment u/s 144 validity of return filed u/s 139(4) - A.Y. 07-08 notice issued u/s 142(1) on 16.10.07 requiring assessee to file return by 20.12.07 assessee filed return on 27.03.08 - subsequent notices u/s 142(1) were issued on 30.03.09, 5.10.09, 26.10.09 and 30.11.09 - non-compliance of notices by assessee - addition on account of long term capital gain arising out of sale of agricultural land - Held that - As per provisions of Section 139(4) assessee was having a right to file the return within one year from the end of the relevant assessment year as he has failed to file the return within the time allowed u/s 142(1) of the Act. Therefore, in view of section 139(4) , return filed on 27-03-08 is a valid return. Since there is no notice u/s 143(2) or u/s 142(1) within time available u/s 143(2) i.e. 30.09.08, therefore, the assessment is invalid because the first notice u/s 142(1) was only for the purpose of filing the return. For the purpose of making an assessment, notice u/s 142(1) was issued for the first time on 30-04-2009. Whatever is not possible to be done directly u/s 143(2) cannot be done u/s 142(1) of the Act. In respect to addition on account of capital gains it is held that Gram Panchayat is not an authority to issue a certificate to show that the land was situated beyond the distance of more than 8 KM of the municipal limit. Therefore, issue is restored back to the file of the AO to decide whether it is a capital asset or not and thus decide allowability u/s 54.- Decided partly in favor of assessee.

Summary

Issues Involved:
1. Validity of the order passed under Section 144.
2. Validity of the return filed by the assessee.
3. Issuance of notice under Section 143(2).
4. Addition on account of long-term capital gain from the sale of agricultural land.
5. Deduction under Section 54 of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Validity of the order passed under Section 144:
The assessee challenged the order passed under Section 144, arguing it was bad in law and on facts. The AO issued multiple notices under Section 142(1) which were not complied with by the assessee, leading to the assessment under Section 144. The tribunal noted that the assessment under Section 144 was justified due to the non-compliance with the notices issued under Section 142(1).

2. Validity of the return filed by the assessee:
The assessee filed the return on 27-03-08, which was beyond the time allowed by the AO under Section 142(1). The AO treated the return as invalid and non est. However, the tribunal held that the return filed on 27-03-08 was valid under Section 139(4), which allows filing before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier.

3. Issuance of notice under Section 143(2):
The tribunal emphasized that a notice under Section 143(2) must be issued within six months from the end of the financial year in which the return is filed. In this case, no such notice was issued, making the assessment invalid. The tribunal cited several cases, including *Asstt. CIT v. Hotel Blue Moon* and *CIT v. Pawan Gupta*, supporting the necessity of issuing a notice under Section 143(2) for a valid assessment.

4. Addition on account of long-term capital gain from the sale of agricultural land:
The assessee contended that the land sold was not a capital asset as it was situated beyond 8 KM from the municipal limit. The tribunal noted that the certificate from Gram Panchayat was not sufficient and required a certificate from the Revenue authorities like Tehsildar. The issue was restored back to the AO to allow the assessee to provide the necessary evidence.

5. Deduction under Section 54 of the Income Tax Act:
The assessee claimed a deduction under Section 54B for investing Rs. 15 lacs in purchasing agricultural land. Since the issue of taxability of the profit from the sale of land under 'capital gain' was set aside, the tribunal also restored the allowability of the deduction under Section 54B back to the AO. The AO will consider the deduction if the profit is deemed taxable under 'capital gain'.

Conclusion:
The tribunal concluded by canceling the assessment order and partly allowing the appeal of the assessee. The issues regarding the addition on account of long-term capital gain and the deduction under Section 54 were restored back to the AO for reconsideration and allowing the assessee to provide necessary evidence.