2019 (2) TMI 1899 - AT - Income Tax

Reopening of assessment u/s 147 - capital gain computation - assessee had not shown any long term capital gain under the provision of section 45(2) r.w.s. 2(47) and section 55(2)(b)(i) - CIT(A) has assigned the rate for land at ₹ 900/- per sq. mt. on the date of transfer of the aforesaid land as to the firm - HELD THAT - We observed there was no material on record which could have clarified the impugned discrepancy of incorrect reporting of income by the assessee. AO was having reasons of to believe that income chargeable to tax has escaped assessment for the year under consideration. After considering the above facts and circumstances as elaborated supra we justify the findings of the ld. CIT(A) that the assessing officer reopened the assessment with valid reason. Therefore, the appeal of the assessee on this issue is dismissed. Capital gain computation - AO held that non-agricultural land of 4960 kg mtrs held as stock in trade by the assessee was brought as capital contribution to the firm M/s. C.N. Builders and Developer on 18-10-2003 - HELD THAT - We observe that impugned land forming stock-in-trade of assessee was transferred as a capital contribution by assessee therefore profits or gains arising from transfer of this asset would be chargeable to tax as assessee's income of previous year in which such transfer has taken place. Lower authority has failed to make any reference to the Valuation Officer u/s 55A of the act to determine the fair market value of the asset we direct the assessing officer to adopt rate of ₹ 900/- per sq. mts for the value of the impugned land as determined by the Ld.CIT(A) in his order dated 21st July 2010.Accordingly this ground of appeal of the assessee is partly allowed.

Summary

Issues Involved:
1. Reopening of assessment.
2. Determination of long-term capital gain.
3. Working of capital gain.

Detailed Analysis:

1. Reopening of Assessment:
The assessee challenged the reopening of the assessment, arguing that no income had escaped assessment and that the reopening was based on reappraisal of the notes attached to the return of income, without new material. The assessing officer had noticed from the computation of income that the assessee transferred non-agricultural land to a partnership firm without disclosing any long-term capital gain. The officer believed there was underreporting of income from long-term capital gain amounting to ?82,66,535. The tribunal found that the assessing officer had valid reasons to believe that income chargeable to tax had escaped assessment, justifying the reopening. Thus, the appeal on this issue was dismissed.

2. Determination of Long-Term Capital Gain:
The assessee had converted agricultural land into non-agricultural land and then into stock-in-trade, which was transferred to a partnership firm as capital contribution. The assessing officer held that this conversion and transfer amounted to a transfer under section 2(47) of the Income Tax Act, liable for long-term capital gain tax. The officer calculated the fair market value of the land at ?2,000 per sq. meter, resulting in a capital gain of ?83,23,674. The CIT(A) initially adjusted the value to ?900 per sq. meter but later sustained the officer's valuation at ?2,000 per sq. meter. The tribunal noted that the officer did not refer the valuation to the Departmental Valuation Officer, which was necessary. Therefore, the tribunal directed the officer to adopt the rate of ?900 per sq. meter as determined by the CIT(A) in an earlier order.

3. Working of Capital Gain:
The assessee argued against the fair market value determined by the assessing officer, stating it should be ?600 per sq. meter based on a registered valuer's report, not ?2,000 per sq. meter. The tribunal observed that the assessing officer relied on the sale of similar land in the vicinity and assumed a 5% increase in fair market value to determine the value at ?2,000 per sq. meter. However, the tribunal found that the officer did not make sufficient efforts to ascertain the actual fair market value and failed to refer the matter to the Valuation Officer. Consequently, the tribunal upheld the CIT(A)'s earlier valuation of ?900 per sq. meter for the land and directed the assessing officer to adopt this rate.

Conclusion:
The appeal of the assessee was partly allowed. The tribunal upheld the reopening of the assessment but directed the assessing officer to adopt the fair market value of ?900 per sq. meter for the land, as determined by the CIT(A) in an earlier order. The order was pronounced in the open court on 12-02-2019.