2018 (5) TMI 901 - AT - Income Tax

Reopening of assessment - nature of land sold - undisclosed capital gain - Held that - To measure the distance from the radius of municipal corporation, the relevant date would be the date of notification and the date of notification is 06.01.1994. It can be safely concluded that if on 26.11.2015 the distance was more than 10 kms as per the certificate of the Tehsildar, it can never be within 8 kms on the date of notification i.e. 06.01.1994. Therefore, the basis for reason to believe that income has escaped assessment is factually incorrect. Since the impugned land was not an asset within the meaning of section 2(14) of the Act, there was no question of showing any capital gain in the return of income. This basis of reopening of the assessment is also invalid, which leads to the quashing of the assessment order. Moreover, the reasons recorded, as mentioned elsewhere, the AO has taken the cost of acquisition at ₹ 1 lakh as on 1.1.1980. We fail to understand under which provisions of the Act the AO has estimated the cost of acquisition of the land as on 1.1.1980. - Decided in favour of assessee.

Issues involved:
Validity of assessment order under section 143(3) r.w.s. 147 of the Income-tax Act, 1961.
Challenge to the belief that income has escaped assessment under section 147 of the Act.
Validity of reasons recorded for reopening the assessment.
Calculation of capital gain and cost of acquisition of the land.
Legal validity of the notice issued under section 148 of the Income Tax Act.

Detailed Analysis:
The appeal was filed against the order of the CIT(A)-I, Gurgaon for A.Y 2011-12, challenging the validity of the assessment order under section 143(3) r.w.s. 147 of the Income-tax Act, 1961. The AO found that the assessee did not declare capital gain from the sale of land in the return of income. The AO issued notices under sections 148, 42(1), and 143(2) of the Act, leading to the completion of assessment at ?8.28 crores due to capital gain on the sale of land. The assessee contended that the assessment was invalid as the reasons recorded by the AO were unsigned and lacked material for believing income escapement, which was dismissed by the CIT(A).

The main issue was the belief that income escaped assessment under section 147 of the Act, based on the sale of land falling within the municipal limits of Gurgaon. However, it was found that the land was outside the municipal corporation area, as evidenced by documents. The distance from the municipal corporation limit was more than 10 kms, making the basis for the belief factually incorrect. Additionally, since the land was not an asset under section 2(14) of the Act, there was no requirement to show capital gain. The AO's estimation of the cost of acquisition at ?1 lakh as of 1.1.1980 was also questioned.

The reasons recorded for reopening the assessment were found to be legally invalid due to the lack of AO's signature, as per precedents from various High Courts. The Tribunal concluded that the notice issued under section 148 was bad in law, leading to the quashing of the reassessment order. The reassessment was set aside, and the appeal of the assessee was allowed, rendering the Stay Application unnecessary. The judgment highlighted the importance of complying with procedural requirements and ensuring factual accuracy in forming a belief for income escapement under the Income Tax Act.

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