2011 (10) TMI 484 - AT - Income Tax

Validity of reopening of assessment on ground that assessee is indulged in purchase & sale of land resulting in business income whereas assessee disclosed the same as capital gains - Capital asset or agricultural land - Held that - A perusal of transactions, revealed that assessee have failed to report three sale instances for an aggregate value of Rs. 43.79 lakhs, with the declared transactions aggregating to Rs. 18.06 lakhs. There was no mention of the same in the return of income. It is clarified that only items unconnected with the escapement of income for which the notice is given, would be excluded, so that the AO shall have to issue a fresh notice u/s. 148. However, in instant case, the same are clearly connected, with the AO finding the undisclosed transactions only from the details of the land sales entered into by the assessee for the year. Reopening is held to be valid - Decided against the assessee. Capital asset vs agricultural land - Held that - The land/s under reference has not been shown as used for agricultural purposes. There is nothing to exhibit that any agricultural activity was carried out by the assessee at any time. Neither the returns of income for the current year or the preceding years nor the cash flow statement submitted bore any agricultural income. In fact, both the manner of the land sale (area, measure, price, transferee) depicts that the land was not sold as an agricultural land; the price fetched itself making it unfeasible for agricultural purpose. In fact, it would not be sufficient if the land/s was once an agricultural land, i.e., being actually cultivated . The land/s under reference was, in our opinion, not an agricultural land, at least at the relevant time, i.e., of its sale, and stands rightly treated by the Revenue as non-agricultural land. We decide accordingly - Decided against the assessee. Interest is rightly applied u/s 234B and 234C since date of filing of the letter conveying that the return filed earlier be treated as a return in response to the notice u/s. 148, has to be treated as the date of compliance of the notice u/s. 148. Also, the delayed filing of the return would not impact the levy of interest u/s. 234B but only u/s. 234A - Decided against the assessee.

Issues Involved:
1. Maintainability of the impugned assessment framed under Section 143(3) read with Section 147 of the Income-tax Act, 1961.
2. Nature of the three pieces of land sold by the assessee during the relevant previous year, i.e., whether they are agricultural or non-agricultural lands.
3. Computation of capital gains, specifically the fair market value (FMV) as on 1.4.1981.
4. Computation of interest liability under Sections 234A and 234B.

Issue-wise Analysis:

1. Maintainability of the Impugned Assessment:
The assessee contested the jurisdictional aspect of the assessment, arguing that the AO should have dropped the proceedings after concluding that the assessee was not undertaking any business by way of purchase and sale of land. The AO had issued a notice under Section 148 within four years of the relevant assessment year, suspecting escapement of income chargeable to tax. The Tribunal held that the AO's actions were justified as the undisclosed transactions were connected with the escapement of income for which the notice was issued. Consequently, the assessee's Ground No. 1 was dismissed.

2. Nature of the Land Sold:
The principal issue was whether the land sold was agricultural, and thus not a capital asset under Section 2(14)(iii) of the Act. The Tribunal examined whether the land was used for agricultural purposes, considering factors such as the payment of land revenue, electricity consumption for agricultural purposes, and the actual use of the land. The Tribunal concluded that the land was not used for agricultural purposes at the time of its sale, noting the absence of evidence of agricultural activity and the land's location in a well-developed area. Consequently, the Tribunal upheld the Revenue's treatment of the land as non-agricultural.

3. Computation of Capital Gains:
The assessee contested the FMV as on 1.4.1981 adopted by the AO. The AO had estimated the FMV at Rs. 350 per Are based on a purchase rate of Rs. 403 per Are in December 1986, applying a discount for the time difference. The Tribunal found the adopted rate to be fair and dismissed the assessee's ground as without merit.

4. Computation of Interest Liability:
The assessee disputed the computation of interest under Sections 234A and 234B, relying on a precedent. The Tribunal clarified that the reliance on the cited decision was improper, as the facts differed. The Tribunal directed the AO to charge interest in accordance with the law, noting that the delayed filing of the return would impact the levy of interest under Section 234A but not under Section 234B.

Conclusion:
The Tribunal partly allowed the assessee's appeal for statistical purposes, upholding the AO's actions on the maintainability of the assessment and the nature of the land, while providing specific directions regarding the computation of interest liability.

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