2019 (8) TMI 1316 - AT - Income Tax

Reassessment u/s. 147 - allowability of assessee to exemption u/s. 54B denied - non availability of file containing reasons to believe - HELD THAT - The assessee had pleaded for copy of reasons recorded under the RTI Act, 2005 and in response to the said application, the AO has given a copy of the assessment order to the assessee, but has informed the assessee that assessment records for AY 2010-11 was not readily traceable and reasons recorded would be furnished as soon as records are available. Even in the proceedings before the Tribunal, the department has informed that appeals may be decided on merits, rather than on validity of initiation of proceedings u/s. 147. Initiation of reassessment proceedings have not been established to have been in accordance with the requirements of section 147. There is no material brought to our notice that reasons were recorded before issue of notice u/s.148 which is a sine quo non for valid initiation of reassessment proceedings u/s.147 - no tangible material coming into the possession of AO after expiry of period of limitation for framing assessment order u/s. 143(3) based on which, he came to the conclusion that there has been escapement of income chargeable to tax. The department has also not been able to show before the Tribunal the reasons recorded to justify the validity of initiation of reassessment proceedings u/s. 147. In these circumstances, drawing an adverse inference, we hold that initiation of reassessment proceedings u/s. 147 were not valid. Deduction u/s 54B - As far as merits of the addition is concerned, it is seen that the assessee has invested a sum of ₹ 4.68 crores by paying advance for purchase of agricultural lands. It is not disputed that had the sale been completed pursuant to those agreements, the assessee would be entitled to benefits of deduction u/s. 54B. It is also not disputed that due to pending litigation, the sale could not be completed between these parties. However, in respect of agreement between assessee and Narayanappa Others., the litigation has ended and assessee had got title of property on 03.07.2019, copy of the sale deed was filed before us. We are of the view that even otherwise, the assessee has complied with the conditions for grant of deduction u/s. 54B inasmuch as he has utilised, within a period of two years from the date of transfer of capital asset, the capital gain in purchasing another land for being used for agricultural purposes. The fact that the assessee did not get legal title to the lands is no ground to deny the benefit of deduction u/s. 54B.- Decided in favour of assessee

Summary

Issues Involved:
1. Validity of initiation of proceedings under Section 147 of the Income-Tax Act, 1961.
2. Allowability of exemption under Section 54B of the Income-Tax Act, 1961.

Detailed Analysis:

1. Validity of Initiation of Proceedings under Section 147:

The assessee challenged the initiation of reassessment proceedings on the grounds that the reasons recorded were not provided to him and there was no belief regarding the escapement of income chargeable to tax. The CIT(Appeals) rejected this claim, stating that the records showed the assessee was provided with the reasons and had filed objections. However, the Tribunal noted that the department failed to produce the assessment records to verify the reasons recorded by the AO for initiating proceedings under Section 147, despite multiple opportunities. The Tribunal concluded that there was no material to show that reasons were recorded before issuing the notice under Section 148, which is a sine qua non for valid initiation of reassessment proceedings. Consequently, the Tribunal held that the initiation of reassessment proceedings under Section 147 was not valid.

2. Allowability of Exemption under Section 54B:

The assessee sold agricultural land and deposited the capital gains in a designated account, intending to purchase another agricultural land to claim exemption under Section 54B. The assessee entered into agreements to purchase agricultural land and paid substantial amounts as advances. However, due to title disputes, the sales could not be completed within the stipulated period. The AO disallowed the exemption, stating that the property was not purchased within the stipulated period. The CIT(Appeals) upheld this decision, distinguishing it from other cases where there was a high degree of certainty in completing the transaction.

The Tribunal, however, noted that the assessee had invested a significant amount in purchasing agricultural land within the required period, and the non-completion of the sale was due to circumstances beyond the assessee's control. The Tribunal referred to decisions of higher courts, which supported the view that the investment in the new asset within the stipulated period suffices for claiming exemption, even if the legal title is not obtained within that period. The Tribunal held that the assessee complied with the conditions for exemption under Section 54B, as the capital gains were utilized for purchasing agricultural land within two years from the date of transfer. Therefore, the Tribunal directed that the exemption under Section 54B be allowed to the extent of the capital gains utilized, excluding the stamp duty and registration fees but including the actual stamp duty and registration charges paid for acquiring the title.

Conclusion:

The Tribunal allowed the appeal, holding that the initiation of reassessment proceedings under Section 147 was invalid and the assessee was entitled to the exemption under Section 54B of the Income-Tax Act, 1961. The decision emphasized that the investment in the new agricultural land within the stipulated period is sufficient for claiming exemption, irrespective of the completion of legal formalities.