2020 (5) TMI 304 - AT - Income Tax

Reopening of assessment u/s 147 - capital gain of sale of land - whether the said land is a capital asset u/s 2(14) or is an agricultural land entitling assessee to exemption? - conversion of the land into residential area - HELD THAT - The assessee has not furnished any evidence even before us to prove that agricultural operations were carried on the said land but only bald statement is made that water melon and pumpkin was grown. The assessee has filed additional evidences before us to contend that Government of Tamil Nadu vide Notification in G.O. Ms No. 153 dated 20.06.2013 had included Thaiyur Village in the Mamallapuram Local Planning Area , which is post the said previous year. The said land falls within Chengalpattu District , which falls within jurisdiction of CMDA and it is to be verified from which date the said land came within CMDA as there are master plans which were revised from time to time . There is a need for detailed verification and enquiry in the instant case with respect to classification of said land , whether it falls within jurisdiction of CMDA during relevant period or not, whether agricultural activities were conducted by assessee on the said land or not, whether the said land is a capital asset u/s 2(14) or is an agricultural land entitling assessee to exemption etc. , before arriving at the conclusion as to chargeability to tax of the capital gains earned by assessee on the sale of said land. The assessee is claiming exemption and hence onus is on assessee to prove that its income falls within four corners of exemption provisions as are contained in the 1961 Act. Matter needed to go back to the file of the AO for framing denovo assessment on merits of the issue as well on legal/jurisdictional ground raised by assesse wrt reopening of the concluded assessment u/s 147 - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income-tax Act, 1961.
2. Classification of the land sold by the appellant as agricultural or non-agricultural.
3. Basis for the assessment of capital gains on the sale of the land.

Detailed Analysis:

1. Validity of Reopening the Assessment:
The appellant challenged the reopening of the assessment under Section 147 of the Income-tax Act, 1961, arguing that it was done after four years based on a mere change of opinion, violating the proviso to Section 147. The Tribunal observed that the reopening was based on an objection raised by the Revenue Audit Party, which highlighted that the land in survey numbers 1248 and 1249 was classified as "Residential Area-Class I" according to the Tamil Nadu Registration Department website. This classification indicated that the land was a capital asset, thus subject to short-term capital gains tax. The Tribunal upheld the reopening, citing various judicial precedents, including the Supreme Court's decision in Kalyanji Mavji & Co. Vs. CIT, which allows reopening based on new facts that come to light subsequently.

2. Classification of the Land:
The appellant contended that the land was agricultural, as evidenced by its classification in revenue records and the absence of any conversion into residential land before the sale date. The Tribunal noted that the Assessing Officer (AO) had made inquiries with the Tahsildar and Sub-Registrar, who confirmed that no agricultural activities were carried out on the land from 2003 to 2007, except for survey number 1395/3B. The land was formally classified as residential on 01.08.2007, just five days after the sale. The Tribunal emphasized that the land's classification as residential was a long-drawn process and could not have changed character within five days. The Tribunal cited the decision of the Hon'ble ITAT in ACIT Vs. Shri Pallavaram Kothandaraman Ramesh, which held that land classified as residential by the government could not be deemed agricultural despite revenue records stating otherwise.

3. Basis for the Assessment of Capital Gains:
The appellant argued that the land was sold as agricultural land and thus exempt from capital gains tax under Section 2(14) of the Act. The Tribunal noted that the AO had observed the appellant's intent to make quick profits from the rising real estate market, as evidenced by the significant increase in the land's sale price compared to its acquisition cost. The AO's inquiries revealed that the land was not used for agricultural purposes, and the appellant failed to provide any evidence to substantiate claims of agricultural activities. The Tribunal also referred to the Hon'ble Madras High Court's decision in M/s. Chemmancherry Estates v. ITO, which held that land within the jurisdiction of the Chennai Metropolitan Development Authority (CMDA) is non-agricultural unless proven otherwise.

The Tribunal concluded that the land sold by the appellant was not agricultural, and the short-term capital gains arising from its sale were taxable. The Tribunal directed the AO to conduct a de novo assessment, allowing the appellant to present all relevant contentions and evidence.

Conclusion:
The Tribunal upheld the reopening of the assessment under Section 147, classified the land as non-agricultural based on government records and lack of evidence of agricultural activities, and directed a de novo assessment for a thorough verification of facts and legal contentions. The appeal was allowed for statistical purposes, ensuring that the appellant would have an opportunity to present all arguments and evidence in the reassessment proceedings.

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