2018 (6) TMI 278 - AT - Income Tax

Escapement of income requiring reopening of the assessment u/s 148 - Nature of land sold - STCG - Held that - In the computation of income, the assessee has taken the net figure after reducing the interest on loans and development charges and therefore, the assessee has actually taken the sale consideration at ₹ 44,12,500 only and there was no escapement of income in computation of the STCG. Therefore, there is no escapement of income requiring re-assessment u/s 147. In the revised return filed in response to section 148 has claimed the land as agricultural land. AO has also accepted that as per the revenue records, these lands are agricultural lands but the only reason for not accepting the said contention is that the assessee has not carried on any agricultural operations. In the case of CIT vs. Smt. Debbie Alemao and 2.Joaquim Alemao, (2010 (9) TMI 560 - BOMBAY HIGH COURT) has held that where the land is shown in revenue record as agricultural land and no permission was taken for conversion of land, it is immaterial whether any agricultural income is shown in the return or not, the gains from sale are exempt from taxation. The reason given by the AO for not accepting the assessee s contention is not sustainable. - Decided in favour of assessee.

Summary

Issues: Appeal against CIT (A)'s order for A.Y 2005-06; Nature of land sold as agricultural or business asset; Allowance of expenditure incurred in sale of land; Escapement of income for reassessment u/s 148; Change of head of income without notice.

Analysis:
1. Escapement of Income and Reassessment u/s 148:
The AO initiated reassessment u/s 148 due to a perceived escapement of income when the assessee declared a lower sale consideration in the original return compared to the actual sale consideration. However, the ITAT found that there was no escapement of income as the net figure was correctly computed, and thus, reopening the assessment was not warranted.

2. Nature of Land Sold:
The dispute centered on whether the land sold by the assessee was agricultural or a business asset. The assessee claimed the land was agricultural, beyond urban limits, and not used for business purposes. The AO treated the profit from the sale as income from business, disallowing expenses. The ITAT, citing legal precedents, held that if land is recorded as agricultural and not converted, even without agricultural income shown, the gains from sale are exempt from taxation. Thus, the ITAT accepted the assessee's claim that the land was agricultural, and no capital gains tax was applicable.

3. Allowance of Expenditure:
The assessee contended that the entire expenditure incurred in the sale process should be allowed for calculating taxable profit. However, the AO disallowed 50% of claimed expenditure due to lack of evidence. The ITAT did not address this issue explicitly in the judgment but allowed the appeal based on the nature of the land sold.

4. Change of Head of Income without Notice:
The assessee raised a procedural issue regarding the change of head of income from agricultural to business without prior notice. The ITAT did not delve into this issue explicitly in the judgment but focused on the substantive matter of the land's nature and the tax implications.

In conclusion, the ITAT allowed the assessee's appeal, holding that the land sold was agricultural, and no capital gains tax applied. The judgment emphasized the importance of legal precedents in determining the tax treatment of land transactions and highlighted the need for proper verification before reassessing income.