2019 (5) TMI 543 - AT - Income Tax

Reopening of assessment u/s 147 - nature of land sold gain arising from the said land was claimed to be exempt on the ground that the said land being an agricultural land was not a capital asset within the meaning of section 2(14) - HELD THAT - Assessments completed originally in case of the two assessee were reopened by the Assessing Officer on the basis of vague and irrelevant information, which was indefinite and far-fetched for the formation of any belief that was entertained by the Assessing Officer that the land sold by the assessee was not an agricultural land within the meaning of section 2(14)(iii) and that the gain arising from such sale was chargeable to tax. It is thus abundantly clear that the reasons recorded by the Assessing Officer for the belief which was formed by him failed to satisfy the requirements of section 147 and the initiation of reassessment proceedings without satisfying this mandatory requirement was bad-in law. The assessments completed by the Assessing Officer under section 147/143(3) in case of both the assessee in pursuant to such invalid initiation thus are liable to be cancelled being bad-in-law. - Decided in favour of assessee.

Issues Involved:
1. Validity of re-assessment proceedings under section 147/143(3).
2. Classification of land as urban or rural for tax exemption purposes.
3. Evidence supporting the claim of the land being agricultural.
4. Relevance and adequacy of information received by the Assessing Officer for reopening assessments.

Comprehensive, Issue-wise Detailed Analysis:

1. Validity of Re-assessment Proceedings:
The assessees challenged the validity of the re-assessment proceedings initiated by the Assessing Officer (AO) on the grounds that the reopening was based on incorrect reasons without any tangible material and lacked independent application of mind by the AO. The AO had reopened the assessments based on information received from DDIT(Inv.), Chennai, which suggested that the land sold by the assessees was urban land, contrary to the original claim that it was rural agricultural land. The CIT(Appeals) upheld the AO's decision, stating that the reassessment was based on new information received after the original assessments were completed, thus not constituting a mere change of opinion.

2. Classification of Land as Urban or Rural:
The assessees claimed that the land sold was rural agricultural land and thus not a capital asset under section 2(14) of the Income Tax Act, supported by a certificate from the Tehsildar of Tirupporur stating that the land was located 20 kms away from the boundary of Chennai Municipal Corporation. The AO, however, relied on the information from DDIT(Inv.), Chennai, which indicated that the land was only 3 kms away from the Chennai Metropolitan area, hence classifying it as urban land.

3. Evidence Supporting the Claim of the Land Being Agricultural:
The AO denied the exemption on the grounds that the land was classified as residential land on the Website of Registration Department, Chennai, and no evidence was produced by the assessees to establish any agricultural activity on the property. The CIT(Appeals) confirmed this view, holding that the land fell within the category of urban land based on the report from DDIT(Inv.), Chennai.

4. Relevance and Adequacy of Information Received by the Assessing Officer:
The Tribunal found that the information received by the AO regarding the land being 3 kms from the Chennai Metropolitan area was vague and irrelevant for determining whether the land was agricultural under section 2(14)(iii). The Tribunal noted that the relevant distance should be measured from the local limits of the Chennai Municipal Corporation, not the Metropolitan area. The Tribunal held that the AO's belief about the escapement of income was based on irrelevant information, lacking a live-link or nexus with the belief required under section 147. The Tribunal cited Supreme Court judgments in Sheo Nath Singh and Lakhmani Mewal Das, emphasizing that the belief must be based on reasonable grounds and not on vague or irrelevant information.

Conclusion:
The Tribunal concluded that the reopening of assessments was invalid as the AO relied on vague and irrelevant information. Consequently, the assessments completed under section 147/143(3) were cancelled, rendering the other grounds raised by the assessees regarding the additions made on account of long-term capital gain infructuous. Both appeals of the assessees were allowed.

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