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TMI Blog2014 (11) TMI 265X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of the material available on record for escapement of the income as per the definition given under explanation 2(b), it cannot be said that such an action is illegal and without jurisdiction - Sec. 147 permitted the AO to assess or re-assess the income chargeable to tax when he has reason to believe income escaping assessment - The mere failure to take steps u/s 143(3) would not render the AO powerless to initiate proceedings u/s 147 of the Act even when intimation u/s 143(1) had been issued - with the amendment brought to Sec. 147 of the Act on and from 1.4.1989 and the elucidation on the scope of the authority and jurisdiction of the officer u/s 147 of the Act, the proceedings initiated by the AO u/s 147 are valid and the AO could have taken the action u/s 147 on the basis of the material available and filed along with the return - There is no need of any fresh tangible material for coming to the ‘reason to believe' that the income has escaped assessment in view of explanation 2 clause (b) of Sec. 147 – Decided against assessee. Adoption of FMV of agricultural land sold during the year as on 1.4.1981 - Whether the land sold by the Assessee is a Capital asset - Hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property sold is not mentioned as agricultural land. whereas the Assessee has taken the following effective grounds of appeal in its Cross objection : 1. The cross objector submits that the Assessing Officer erred in assuming jurisdiction u/s 147 when the jurisdictional conditions were not fulfilled. 2. The Assessing Officer erred in resorting to the provisions of section 147 without having reason to believe that income chargeable to tax had escaped assessment. 3. The Assessing Officer erred in attempting to improve upon the reasons recorded at the time of reopening the assessment. 4. The Assessing Officer erred in adopting the fair market value of agricultural land sold during the year as at 1st April, 1981 @ ₹ 5/- per sq. mtr. The appellant submits that the value of the said land as at 1st April, 1981 is substantially higher and that the Assessing Officer be directed to adopt the said higher value. 2. At the outset, both the parties agreed that the issue involved in the appeal is duly covered by the order of this Tribunal in ITA Nos. 178, 129-130, 144, 156-161 174-175/PNJ/2013 dt. 6.6.2014 in the case of Shri Durgadas K. Prabhu Shastri 11 others. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income- tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (ba) where the assessee has failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviso thereto. The only condition to clothe with the jurisdiction u/s 147 in such case is that there must be reason to believe' that any income chargeable to tax has escaped assessment. The reason to believe' means where there is relevant material on which a reasonable person could have formed the requisite belief. The material need not conclusively prove escapement of income at the stage of the reason to believe'. The principle of change of opinion for reason to believe' is not applicable as the AO has not to apply his mind while processing return u/s 143(1). Rather AO is bound to accept it if it is otherwise a valid return and does not have any defect. Now, as per the scheme of CBDT, the return has to be processed by the computer and not by AO. In the case of Assessee return has only been processed u/s 143(1), therefore, no question of applying the mind by AO arises while determining the taxable income is concerned. The decision relied on by ld. Advocate deals with the bona fide of reason to believe'. In the absence of bona fide reasons, it is a settled law that without reason to believe', the proceedings u/s 147 cannot be initiated. It is not the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income or has claimed excessive loss, deduction, allowance or relief in the return, it shall be deemed to be a case where income chargeable to tax has escaped assessment. We do not find that the explanation 2(b) has been considered by the Hon'ble High Court in this decision while the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) has duly reproduced at pg. 506 explanation 2(b) and has observed that w.e.f. 1.4.1989 the provisions of Sec. 147 underwent substantial and material change. No doubt the term income chargeable to tax has escaped assessment' was defined u/s 147 prior to 1.4.1989 under explanation 1 to Sec. 147 but that definition was entirely different. No such clause as clause (b) under explanation 2 was there in the deeming provision given under explanation 1 in respect of income escaping assessment under the old section 147. We do not agree that Sec. 147 proceedings could cover only the reassessment. The relevant provisions of explanation 1 to Sec. 147 as it stood prior to 1.4.1989 reads as under : Explanation 1. - For the purposes of this section, the following shall also be deemed to be cases ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f explanation 2 does not require that the assessment must precede before taking any action u/s 147. 10.6 We noted that there is decision of Full Bench of the Hon'ble Delhi High Court in the case of CIT vs. Usha International Ltd, 348 ITR 485 (Delhi) (FB) which has taken a view contrary to the decision of Orient Craft Ltd. (supra), 354 ITR 536 (Del.). Even this decision of full bench has not been referred to in the case of Orient Craft Ltd. (supra). 10.7 We noted that the Hon'ble Supreme Court in the case of Raymond Wollen Mills Ltd vs. ITO, 236 ITR 34 when a similar question had come before the Hon'ble Supreme Court did not decide the issue whether any new fact came to the knowledge of the ITO after completing the assessment proceedings. But that was not a case of processing the return u/s 143(1). We noted that the Hon'ble Supreme Court in the case of Rajesh Jhaveri (supra) has discussed the provisions of Sec. 143(1) and 147 in detail as well as the term reason to believe' and has categorically held that where the return is processed u/s 143(1) there is no assessment. 10.8 Sec. 147 has used both the words assess' or reassess'. This implies th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income, profits or gains chargeable to income-tax have escaped assessment for any year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under this Act, or that excessive loss or depreciation allowance has been computed, he may in cases falling under clause (a) at any time 2[* * *) and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of Section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section: 11.2 We noted that Sec. 34 authorises the AO to take action for re-assessment under two situations; the first situation is given in Sec. 34(1)(a) and second is given in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enquiry into the materials which form part of the original assessment, section 34(1)(b) would have no application. 11.3 From the aforesaid judgement, we noted that the Hon'ble Court has interpreted that the word subsequent information' requires fresh facts and material or if there are existing facts, then, there must be enquiry into the materials available. Thus, we noted that requirement of fresh material or facts has been interpreted by the court because Sec. 34(1)(b) states that the AO has in consequence of information in his possession reason to believe'. Reason to believe' should have arisen in consequence of the information and as the information cannot be based without material or facts, therefore, it has been interpreted by the Court that there must be fresh facts or tangible material with the AO. We noted that in Sec. 147, as was in existence prior to 1.4.1989, under sub-clause (b) similar language has been used as had been used in Sec. 34(1)(b). For ready reference the said section 147 as was in existence prior to 1.4.1989 is reproduced as under :- 147. If -- (a) the Income-tax Officer has reason to believe that, by reason of the omission or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extends no further. Whether on the information in his possession, he should commence proceedings for assessment or reassessment, must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act: if he has information from which it may be said, prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court exercising powers under article 226 of the Constitution to set aside or vacate the notice for reassessment on a reappraisal of the evidence. In a petition under article 226 of the Constitution, the taxpayer may challenge the validity of a notice under section 147 of the Income-tax Act, 1961, on the ground that either of the conditions precedent does not exist, but an investigation whether the inferences raised by the Income-tax Officer are correct or proper cannot be made. Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information must, it is true, have come into the possess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Sec.147 as substituted w.e.f. 1.4.1989 is substantially different from the provisions as stood prior to such substitution. The court has interpreted from time to time that there must be bona fide reason to believe. Where the AO has applied his mind to the material available with him, he cannot be permitted to review the assessment in the garb of reason to believe'. The Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (supra) has categorically taken the view at pg. 509 that the intimation u/s 143(1) cannot be treated to be an order of assessment. The AO is bound to accept the return as has been filed by the Assessee and process it. Since the AO is bound to process the return without making any addition thereon, no question of application of mind by the AO arises. Therefore, it cannot be said that the AO has applied his mind and if the AO is taking action u/s 147 on the basis of the material available on record for escapement of the income as per the definition given under explanation 2(b), in our opinion, it cannot be said that such an action is illegal and without jurisdiction. The Hon'ble Supreme Court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon'ble High Court took the view that if intimation u/s 143(1) was issued and scrutiny assessment u/s 143(3) was not done, assessment could be re-opened if there was reason to believe' that income chargeable to tax had escaped assessment. This decision, therefore, will not apply to the facts of the case of the Assessee as it is not a ground in the case of the Assessee that the AO was not having reason to believe'. In the case of Indivest Pte Ltd. vs. Addl. DIT, 350 ITR 120 (Bom) (supra), we noted that the Hon'ble High Court has held that the AO has power to reopen the assessment provided there is tangible material to come to the conclusion that there is escapement of income from assessment. The reasons must have a live link with the formation of the belief. The validity of the notice reopening the assessment u/s 148 of the Act has to be determined on the basis of the reasons which are disclosed to the Assessee. Those reasons constitute the foundation of the action initiated by the AO for reopening the assessment. Those reasons cannot be supplemented or improved upon subsequently. In this decision also, the Hon'ble High Court nowhere mentioned that the AO sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oted that this ground was taken by the Assessee before the CIT(A) stating that the AO erred in adopting the fair market value of the agricultural land sold during the year as on 1.4.1981 @ ₹ 5/sq. mtr. After hearing the rival submissions and carefully considering the same, we noted that this ground has not been examined and adjudicated by the CIT(A). We, therefore, restore this issue to the file of the CIT(A) with direction that the CIT(A) should give a finding on this issue after giving proper and sufficient opportunity to the Assessee. Thus, this ground stands allowed for statistical purpose. 17.3 We have carefully considered the rival submissions alongwith the order of the tax authorities below. We have also gone through the various case laws relied before us. The only question before us is whether the land sold by the Assessee is a Capital asset. Before deciding the issue whether the land sold by the Assessee is a Capital asset, we are of the view that provisions of Sec. 2(14) be referred to as Capital asset' is defined u/s 2(14) of the Income Tax Act. This section lays down as under : capital asset means property of any kind held by an assessee, whether or n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions are provided on the basis of the location of the agricultural land. Clause (a) of sub-clause (iii) of Sec. 2(14) talks of agricultural land which is situated in any area within the jurisdiction of municipality, municipal corporation, notified area committee, town area committee, town committee, or by any other name or a cantonment board and which has a population of not less than ten thousand. Clause (b) of the said sub-clause talks of agricultural land which is situated within 8 kms. from the local limits of municipality or cantonment board referred to in clause (a) as may be notified by the Central Government having regard to the extent of, and scope for, urbanisation of that area and other relevant considerations. It is not the case of the Revenue that the land sold by the Assessee is hit by clause (a) or (b) of sub-clause (iii) of Sec. 2(14). The impugned land is situated more than 8 kms. from Canacona Municipal Committee. Now, therefore, the only question before us is whether the land sold by the Assessee is an agricultural land in India. The Assessee claims that the land sold by the Assessee is an agricultural land in India while the claim of the Revenue is that the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f undesirable undergrowth, and all operations which foster the growth and preservation of the same not only from insects and pests but also from depradation from outside, tending, pruning, cutting, harvesting and rendering the produce fit for the market, would all be agricultural operations when taken in conjunction with the basic operations. The human labour and skill spent in the performance of these subsequent operations cannot be said to have been spent on the land itself. The mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations, would not be enough to characterise them as agricultural operations; in order to invest them with the character of agricultural operations these subsequent operations must necessarily be in conjunction with and in continuation of the basic operations which are the effective cause of the products being raised from the land. The subsequent operations divorced from the basic operations cannot constitute by themselves agricultural operations. Only if this integrated activity which constitutes agriculture is undertaken and performed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclude forest products such as timber, sal and Piyasal trees, Casuarina plantations, tendu leaves and horranuts. Thus, if the land, in our opinion, is cultivable, it can be regarded to be agricultural land. If the land is not cultivable, it cannot be regarded to be agricultural land. Our aforesaid view is duly supported by the decision of the Hon'ble Calcutta High Court in the case of CIT vs. Borhat Tea Co. Ltd., 138 ITR 783 (Cal.) (supra) on which the ld. AR has relied, wherein at pg. 789 the Hon'ble High Court has clearly taken the view that the land must be capable of agricultural operations by observing as under : Thus, for the purpose of land being agricultural land, actual agricultural operations or cultivation or tilling of the land is not necessary. It is to be seen whether such land is capable of agricultural operations being carried on. 17.9 Thus, for the purpose of land being agricultural land, actual agricultural operations or cultivation or tilling of the land is not necessary. It is to be seen whether such land is capable of agricultural operations being carried on. The decision of the Hon'ble Madras High Court in the case of CIT vs. K.E. Sundara M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... had made a comparative study for the definition of capital assets given under the Income Tax Act, 1922 and Income Tax Act, 1961 and took the view that capital assets' under 1961 Act excluded agricultural land in India but under the 1922 Act, it was not all agricultural lands which were excluded from the definition of capital assets but only the land, the income derived from which was agricultural and therefore ultimately observed that under the 1961 Act, all that was required to see was whether the land in question was an agricultural land in India. This denotes, in our opinion, that it is not necessary that land must be actually used for agricultural purposes but it must be capable of carrying on agricultural operations. This decision nowhere deals with the proposition of law that if the land is a barren land and cannot be cultivated, it will still be regarded to be an agricultural land. This decision, in our opinion, will not assist the Assessee. 17.11 In the case of Haresh V. Milani vs. JCIT, 114 ITD 428 (Pune), on which the ld. AR has relied, we noted that the Hon'ble Tribunal held that in the revenue record the said land was classified as agricultural land and it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cteristics of the land has to be decided as per the provisions of Income Tax Act only at the date of the sale. If the land can be regarded to be an agricultural land on the date of the sale, the Assessee will have a case. If the land cannot be regarded to be an agricultural land, then, it will be a capital asset as per provisions of Sec. 2(14). 17.15 In the case of Lavleen Singhal vs. DCIT, 111 TTJ (Del) 326, the Tribunal took the view that - Land being recorded as agricultural land in Revenue records at the time of purchase by assessee and nothing having been done by assessee for putting it to non-agricultural use, same could not be treated as non-agricultural only because assessee did not cultivate it for fourteen years and as per certificate issued by Tehsildar, land falling beyond 8 kms. from Committee Area, was out of the purview of capital asset, hence no capital gains arose on its sale. This decision, in our opinion, will not be applicable in the case of the Assessee as the facts involved in the case of the Assessee are entirely different. The only part of the property has coconut etc. trees. It is having r ubble compound wall, retaining wall, a house and terracin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be treated as agricultural land. The question involved in this decision is entirely different and there is no dispute in the case of the Assessee for determining the agricultural land there should be cultivation by the Assessee or by third party. 9.6.12 In the case of CIT vs. P.C. Joshi B.C. Joshi, 202 ITR 1017 (Bom) (supra) the Hon'ble High Court took the view that the test laid down by the Hon'ble Supreme Court in the case of CWT vs. Officer-in-Charge (Court of Wards), 105 ITR 133 (SC) (supra) must be considered for determining whether the land is an agricultural land. The Hon'ble Supreme Court in that case has categorically laid down that entries in the revenue record are good prima facie evidences though they may not be conclusive. Therefore, in view of this decision, the revenue records are not conclusive. The character of the land will depend on what is the actual nature of the land. 17.18 We have perused the decision of the Hon'ble Bombay High Court in the case of CIT vs. Smt. Debbie Alemao Joaquim Alemao, 331 ITR 59 (Bom) (supra). We noted that in this case the Assessee sold the land. Assessee and his wife filed separate return claiming exempt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther such user of the land was for a long period or whether it was of a temporary character or by any stopgap arrangement; (4) whether the income derived from the agricultural operations carried on in the land bore any rational proportion to the investment made in purchasing the land; (5) whether the permission under section 65 of the Bombay Land Revenue Code was obtained for the non-agricultural use of the land and if so, when and by whom (the vendor or the vendee) ; whether such permission was in respect of the whole or a portion of the land; if the permission was in respect of a portion of the land and if it was obtained in the past, what was the nature of the user of the said portion of the land on the material date; (6) whether the land, on the relevant date, had ceased to be put to agricultural use; if so, whether it was put to an alternative use; whether such cesser and/or alternative user was of a permanent or temporary nature ; (7) whether the land, though entered in the revenue records, had never been actually used for agriculture, that is, it had never been ploughed or tilled ; whether the owner meant or intended to use it for agricultural purposes ; (8) whether the land ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... properly instructed in law would have arrived at it. The assessees sold their ancestral property to S in May 1995. The assessees did not include the gains derived from the sale on the ground that the land was agricultural. The Assessing Officer held that they were liable to pay long term capital gains tax. The Tribunal held that the land was agricultural because the assessees had produced receipts for payment of land revenue which could not be ignored. Admittedly, the subject land was situated in a village and at a distance of about 15 kms. from the municipal limits. The assessees had produced an award of the Land Acquisition Officer and all documents produced by the assessees showed that the acquired land was agricultural. The witnesses whose affidavits were produced had clearly stated that labourers were seen working in the subject land until it was sold to S; the land was classified as agricultural land in the revenue records, and it was subjected to the payment of land revenue. It held that the gains could not be taxed as capital gains. On appeal to the High Court: Held, dismissing the appeal, that the Tribunal was right upon consideration of all the tests or factors laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cultural operation in the land will not make it to be a non-agricultural land. v) Character of the land is not determined by the nature of the products raised. So long as the land is used or can be used for raising valuable plants or crops or trees or any other purpose of husbandry, the land will be regarded to be an agricultural land. vi) The situation of the land in a village or in an urban area is not by itself determinative of its character. Whether the land has been developed by plotting and providing roads and other facilities. 18.1 To determine the correct character of the land, on the request of both the parties we decided to visit the land personally by exercising the power u/s 255(6) and accordingly this Bench visited on 1.4.2014 alongwith Shri Jitendra Jain, Adv. CAs on behalf of the Assessee as well as Smt. Sonal Sonkavde, ld. DR on behalf of the Department. We noted that the impugned property is bounded by a small riverlet from south side which joins the Arabian sea. Arabian sea also demarks its limit from west side. Almost all the area of the land is hilly and rocky, even so much so that there is no easy access to the whole of the property and we had to go th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... barren and uncultivable land can be regarded to be an agricultural land. Opportunities were given from time to time but the ld. AR expressed his inability to bring any decision on this issue which supports his case. It is not denied even by the Revenue that part of the land consists of dry crop i.e. trees of cashew, mango, jack, kokum and coconut. To the extent these trees are standing on the land, this portion of the land, in our opinion, has to be regarded to be agricultural land as this portion of the land is being used for the purpose of agriculture. Neither the Assessee nor the Revenue produced before us the exact measurement of the land on which the trees are standing and out of which dry crop is grown. To the extent the land is actually used for dry crop, the land has to be regarded to be an agricultural land. Since there are approximately 3500 trees standing on the land, which is not denied even by the Revenue and has been accepted by the ld. AR, we, therefore, to the best of our knowledge we estimate that atleast 10 mtrs area is required for one fruit tree and therefore, there are approximately 35000 sq.mtrs area of the land which can be regarded to be cultivable. On the u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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