2020 (9) TMI 673 - HC - Income Tax

Reopening of assessment u/s 147 - change of opinion - whether AO had not formed any opinion in the first instance on the issue relating to transferred capital assets? - whether Tribunal was justified in quashing the re-opening of the assessment? - land fell within the limits of the Corporation of Chennai and the classification cannot be a agricultural land - HELD THAT - We found that the assessee vide letter dated 06.01.2014 during the original assessment proceedings had brought the entire details about the sale of the land in Uthandi Village and also noted the fact that the Gazettee notification issued by the Government of Tamilnadu was very much available when the original assessment was completed and the assessing officer had no new tangible material to clarify its reopening. By relying upon the decision in the case of NKV Krishna 2013 (9) TMI 1258 - ITAT CHENNAI it was held that the land sold was an agricultural land. A crucial aspect was taken note of the Tribunal, i.e., in the case of assessee's spouse, who was also co-owner of the very same property, the property was treated as agricultural land and the assessment was completed under Section 143(3) and the said finding remain undisturbed. The above will clearly show that the re-opening of the assessment in the instant case was a clear case of 'change of opinion' and the Tribunal was justified in allowing the assessee's appeal. Eligibility of the assessee to claim deduction u/s 54(F) - property, which was a residential property was let out for commercial purpose to run the restaurant - HELD THAT - There are several instances where residential properties are put to use for non-residential purposes and this cannot be a test to decide the nature of the property under the provisions of the Income Tax Act, especially, in assessee's case, where the letting out of the property for non-residential purpose was much after the purchase on 03.02.2011 and the lease agreement was on 21.03.2011. So far as the Wealth-Tax assessment is concerned, it may be true that in the assessment, the property is shown as commercial complex, as on the relevant date, 31.03.2011, the property was leased out for commercial purpose. Therefore, the Tribunal was right in holding that the assessee would be entitled to claim deduction under Section 54F of the Act and also rightly restricted to the residential portion only. - Decided against revenue.

Summary

Issues:
1. Validity of reopening assessment under Section 147 of the Income Tax Act.
2. Entitlement to claim deduction under Section 54F of the Act.

Analysis:

Issue 1: Validity of Reopening Assessment
The appellant/revenue challenged the order of the ITAT regarding the reopening of assessment under Section 147 of the Income Tax Act for the assessment year 2011-2012. The assessing officer reopened the assessment due to the contention that the properties sold by the assessee were not agricultural lands but were liable for long-term capital gains. The ITAT held that the reopening was a mere 'change of opinion' based on the fact that the land was within the Corporation of Chennai limits only after a specific date, and the co-owner's assessment of the same land as agricultural remained undisturbed. The Tribunal concluded that the land sold was indeed agricultural, thus justifying the assessee's appeal against the reopening.

Issue 2: Entitlement to Deduction under Section 54F
The assessee claimed deduction under Section 54F for the property purchased after selling the Uthandi property. The assessing officer rejected this claim, stating that the property was converted for commercial use shortly after being purchased for residential purposes. However, the Tribunal found that the property was initially intended for residential use, as confirmed by the certificate from the Greater Chennai Corporation. The Tribunal also noted that the property's commercial use occurred after the purchase and lease agreement, making the assessee eligible for the deduction under Section 54F, limited to the residential portion only. The Tribunal's decision was based on the property's primary residential zoning and sanctioned building plan, disregarding its temporary commercial use post-purchase.

In conclusion, the High Court dismissed the revenue's appeal, upholding the ITAT's decision on both issues. The Court found the reopening of assessment to be a 'change of opinion' and supported the assessee's entitlement to claim deduction under Section 54F for the residential portion of the property acquired.