2018 (5) TMI 1576 - AT - Income Tax

Validity of reopening of the assessment u/s 147 - ROI not filled - jurisdiction of AO - Held that - When the return of income was not filed with the AO then the alleged return of income filed with the wrong jurisdiction cannot be considered for the purpose of deciding the validity of reopening as the AO at the time of initiation of proceedings under section 148 has to form the belief on the basis of the material available with the AO which is sufficient for coming to the conclusion that prima facie the income assessable to tax has escaped assessment. As regards the objection against the approval of reasons for re-opening, we note that no such objection was raised before the authorities below. Thus it is clear that the approval was granted by due application of mind. Hence we do not find any infirmity in the approval. Therefore, we do not find any merit or substance in the objection of the assessee against the reopening of the assessment. Addition u/s 2(14) as Long Term Capital Gain - whether distance of the property in question was situated within the distance of 8 KM from the Jaipur Municipal Limits or beyond 8 KM? - Held that - As per the language of section 2(14)(iii)(b) the distance has to be between the Municipal limits and the area in which the property is situated. Thus the distance is required to be considered from the Municipal limits and the area and not the particular property. Since the assessee has raised an issue which is factual in nature as to whether the area in which the property is situated within the distance of 8 KM from the Municipal limits of Jaipur or beyond it as on 6th January, 1994, therefore, the same is required to be verified at the level of the AO by conducting a proper enquiry. Accordingly having regard to the facts and circumstances, we set aside this issue to the record of the AO for consideration and deciding the same afresh in the light of above observations.

Issues Involved:
1. Validity of reopening the assessment under section 147 of the Income Tax Act, 1961.
2. Addition of ?1,21,80,000/- as long-term capital gain.
3. Classification of sold agricultural land as a capital asset.
4. Treatment of agricultural land as a short-term capital asset.
5. Denial of exemption under section 54B amounting to ?1,11,45,700/-.
6. Deduction of ?17,40,960/- for the cost of acquisition of land.
7. Validity of additions made for other alleged escaped incomes when no addition was made on the purchase of immovable property.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147:
The assessee did not file a return of income for the assessment year 2006-07. The AO received AIR information regarding an investment of ?40,00,000/- made by the assessee in a property and initiated proceedings under section 148. The assessee contended that the reasons recorded by the AO were incorrect and that the approval from the Additional CIT was mechanical. The Tribunal noted that the return of income was not filed with the AO having jurisdiction over the assessee but with a different AO. The Tribunal upheld the reopening, stating that the AO had tangible material to believe that income had escaped assessment. The Tribunal also found no infirmity in the approval process, thus rejecting the assessee's objections.

2. Addition of ?1,21,80,000/- as Long-Term Capital Gain:
The assessee argued that the property in question was agricultural land and did not fall within the definition of a capital asset under section 2(14). The property was claimed to be beyond 8 KM from the municipal limits of Jaipur. The Tribunal referred to the Hon’ble Jurisdictional High Court's decision, which upheld that the distance should be considered at the time of the Notification dated 6th January 1994. The Tribunal remanded the issue to the AO for proper verification of the distance from the municipal limits as on the date of the Notification.

3. Classification of Sold Agricultural Land as a Capital Asset:
The Tribunal noted that the AO had obtained a report from the Tehsildar, which stated that the property was within 8 KM of the municipal limits. However, the Tribunal directed the AO to verify the distance as per the Notification dated 6th January 1994, thus remanding the issue for further investigation.

4. Treatment of Agricultural Land as a Short-Term Capital Asset:
This issue was not separately addressed, as it was inherently linked to the classification of the land as a capital asset. The Tribunal's remand for verification of the distance would also cover this aspect.

5. Denial of Exemption under Section 54B:
The Tribunal noted that the issue of exemption under section 54B was consequential to the determination of whether the land was a capital asset. As the primary issue was remanded to the AO, the Tribunal also remanded this issue for reconsideration based on the outcome of the primary issue.

6. Deduction of ?17,40,960/- for the Cost of Acquisition of Land:
Similar to the exemption under section 54B, the Tribunal found this issue to be consequential. It was also remanded to the AO for reconsideration based on the findings regarding the classification of the land.

7. Validity of Additions Made for Other Alleged Escaped Incomes:
The assessee contended that no further additions could be made if no addition was made on the purchase of immovable property for which the proceedings were initiated. The Tribunal did not find merit in this argument and upheld the additions made by the AO, subject to the remand for verification of the primary issue concerning the classification of the land.

Conclusion:
The Tribunal partly allowed the appeal for statistical purposes, remanding the primary issue of the land's classification and related issues to the AO for further verification and reconsideration. The Tribunal upheld the validity of the reopening of the assessment and found no infirmity in the approval process. The other issues were deemed consequential and were also remanded for reconsideration based on the primary issue's outcome.

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