2020 (1) TMI 123 - AT - Income Tax

Reassessment u/s 147 - MAT - Computation u/s 115JB - Deduction on account of gain on sale of agriculture land (rural) out of book profit - HELD THAT - We find that similar issue regarding exclusion of gains on sale of agriculture land for the purposes of computing the book profits u/s 115JB has been dealt with by the Coordinate Bench in assessee s own case for the subsequent assessment year i.e, A.Y. 2014-15 and after examining the matter at length, the matter has been decided in favour of the Revenue and against the assessee company. The said decision of the Coordinate Bench has since been affirmed by the Hon ble Rajasthan High Court 2019 (9) TMI 101 - RAJASTHAN HIGH COURT - Decided against assessee Reopening of assessment proceedings u/s 147 - income earned by the assessee company through sale of agriculture land - where there is no new material brought on record by the Assessing subsequent to completion of original proceedings u/s 143(3) ? - HELD THAT - In the instant case, the original assessment proceedings were completed vide order u/s 143(3) dated 29.02.2016 and therefore, the provisions of section 263 could have been invoked by the ld CIT by 31.03.2018. However, instead of invoking the revisionary jurisdiction u/s 263 by ld. CIT, the Assessing officer has assumed the jurisdiction u/s 147 of the Act by issuance of notice dated 28.02.2017. Interestingly, for such assumption of jurisdiction, the ld CIT has accorded the approval u/s 151 of the Act. It is therefore a case where matter was referred to the ld CIT for seeking his approval and the ld CIT instead of holding that the matter falls under section 263 and not under section 148 has given the approval u/s 151 of the Act which shows non-application of mind and mechanical grant of approval. Therefore, in the instant case, the assumption of jurisdiction u/s 147 by issuance of notice u/s 148 cannot be sustained and held as invalid in eyes of law. We therefore find force in the contention of the ld AR that there is a distinction between power to review and power to reassess and the AO doesn t have power to review his own order and such power is enshrined under section 263 of the Act and bestowed on the ld CIT which cannot be ceded to the Assessing officer. For assumption of jurisdiction, in the reasons so recorded, the Assessing officer has also stated that assessee has failed to fully and truly disclose all material facts necessary for the assessment. What material facts have not been disclosed by the assessee company have not been spelt out by the Assessing officer and as we have noted above, the Assessing officer has himself stated that the assessee has credited capital gain on sale of agricultural land in its profit/loss account and the same have been reduced while working out book profits u/s 115JB of the Act. Therefore, we find that all primary facts have been duly disclosed by the assessee company and it is for the Assessing officer to draw correct legal inference therefrom. Further, we find that while alleging such failure on the part of the assessee company, the Assessing officer has apparently drawn reference to the proviso to section 147 of the Act which is not applicable in the instant case as the notice u/s 148 dated 28.02.2017 has been issued within four years from the end of impugned assessment year A.Y 2013-14. Thus, the proviso to section 147 and the condition so specified therein cannot be invoked to assume jurisdiction u/s 147 of the Act. Basic requirement for assumption of jurisdiction u/s 147 is not satisfied in the instant case and consequent reassessment proceedings deserve to be set-aside and the ground so taken by the assessee company in its cross-objection is thus decided in favour of the assessee company and against the Revenue.

Summary

Issues Involved:

1. Deduction of ?13,98,46,990/- on account of gain on sale of agricultural land from "book profit" under Section 115JB.
2. Legality of reopening the assessment under Section 147 of the Income Tax Act, 1961.

Detailed Analysis:

1. Deduction of ?13,98,46,990/- on Account of Gain on Sale of Agricultural Land from "Book Profit" under Section 115JB:

The Revenue's appeal contended that the CIT(A) erred in allowing the deduction of ?13,98,46,990/- from book profits under Section 115JB. The Assessing Officer (AO) argued that the gain from the sale of agricultural land, although not a capital asset under Section 2(14)(iii), should not be excluded from book profits for MAT purposes. The AO relied on precedents from CIT v/s R. Krishanarjunan and CIT v/s T.K. Sarla Devi, which held that income from the sale of agricultural land is not agricultural income exempt under Section 10.

The CIT(A) had previously ruled in favor of the assessee for A.Y. 2014-15, allowing the exclusion of such gains from book profits. However, the Coordinate Bench and the Rajasthan High Court later ruled in favor of the Revenue for A.Y. 2014-15. Given the consistency in facts and circumstances, the Tribunal followed the precedent and ruled in favor of the Revenue, allowing the appeal.

2. Legality of Reopening the Assessment under Section 147 of the Income Tax Act, 1961:

The assessee's cross-objection challenged the reopening of the assessment under Section 147. The assessee argued that the AO had already examined and accepted the gain on sale of agricultural land during the original assessment under Section 143(3). The reassessment was initiated without any new tangible material, based solely on a change of opinion, which is not permissible.

The Tribunal examined the reasons recorded by the AO for reopening. It found that the AO had all the relevant facts during the original assessment and had allowed the deduction. The reassessment was based on the same facts and a different interpretation of the law, which constitutes a change of opinion. The Tribunal cited the Supreme Court decision in Kelvinator of India Ltd., which held that reassessment based on a mere change of opinion is not valid.

The Tribunal also noted that the AO's reasons did not specify any failure on the part of the assessee to fully and truly disclose material facts. Since the reassessment notice was issued within four years, the proviso to Section 147, which requires such failure for reassessment, was not applicable.

The Tribunal concluded that the reassessment proceedings were invalid due to the lack of new tangible material and the improper assumption of jurisdiction under Section 147. Therefore, the cross-objection was allowed in favor of the assessee.

Conclusion:

The appeal of the Revenue was allowed, ruling that gains from the sale of agricultural land should be included in book profits under Section 115JB. The cross-objection of the assessee was also allowed, quashing the reassessment proceedings under Section 147 due to the absence of new tangible material and improper jurisdiction.