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TMI Blog2020 (2) TMI 776X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, reopened the assessment for the year under consideration AY 2008-09. 3. During the reopened assessment proceedings, the A.O. noted that the assessee company had purchased land measuring 131425 Sq. Mtrs in survey No. 87/1A at Varem, Reis Magos, Goa from M/s Reis Magos Estates Pvt. Ltd. on 26.07.2001 vide Regd. Sale deed for a consideration of Rs. 9,76,00,000/- . The assessee company kept this land with it for a period of six years. The company further sold the said land for a consideration of Rs. 60 crores to M/s Delanco Home & Resorts Pvt. Ltd. on 09.04.2007. On being asked to explain by the AO as to why no capital gains were returned in the Income-tax return in respect of the above said transaction, the assessee company explained that the land in question was an agricultural land situated at a distance of more than 8 K.M. from the Municipal limits of Panaji and falls in the revenue jurisdiction of village Reis Magos, having population of less than ten thousands. It was, therefore, contended that the said land did not fall in the definition of capital asset, hence, was exempt from capital gains tax as per the provisions of section 2(14) of the Income Tax Act, 1961 (in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the above order of the Assessing Officer, the assessee filed the appeal before the CIT(A) but remained unsuccessful. Hence, the assessee has come in appeal before this Tribunal raising the followings concise grounds of appeal: "1. That the Worthy Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer with regard to reopening of the case u/s 148. 2. a). That there was no reason to believe that the income of the assessee had escaped assessment and further, there was no cogent material with the Assessing Officer for forming the belief for the purpose of reopening of the case u/s 148. b). That the reasons in itself as recorded by the Assessing Officer are vague and without any substance for the purpose of taking recourse to section 148 of the Income Tax Act, 1961 3. Notwithstanding above said ground of appeal, the Ld. CIT (A) has erred in confirming the action of the Assessing Officer that the land in question, as sold by the assessee cannot be classified as agricultural land since as per revenue records, it is an agricultural land and agricultural operations have been carried out and further no construction activity had been c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax, Central Circle, Panaji that a search was carried out at the residence of Sh. Suresh V. Parulekar on 17.11.2009, wherein a copy of sale deed between M/s Blue Coast Infrastructure Development Ltd. and M/s Delanco Home & Resorts Pvt. Ltd. was found. During search operation, it was stated by Sh. Parulekar that his company M/s Reis Magos Estates Pvt Ltd., had sold land of 131425 Sq. Mtrs. in survey No.87/1-A, Verem, Reis Magos, Gao to M/s Morepen Holiday Resorts Ltd. (now M/s. Blue Coast infrastructure Development Ltd.) on 26.07.2001 for a consideration of Rs. 9,76,00,000/-. which was subsequently sold to M/s. Delanco Home.& Resorts Pvt. Ltd. on 09.04.2007 for a consideration of Rs. 60,00,00 000/-. According to article 4.1(1) of the sale deed, the above said land falls under S2 Zone as per the Master Development Plan of Goa which is approved for residential purposes. On enquiring the status of the land, it was gathered that no agricultural operations had been carried on the said land for the last 20-30 years and the land is situated within four kilometers of the Panaji Municipality. Further, it has been noticed that the assessee company is in the business- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above land by M/s Reis Magos Estates Pvt. Ltd. Ans. M/s Reis Magos Estates Pvt. Ltd has purchased this land in the year 1994. The land in Survey No. 87/1A was about 1,30,000 sq. mtrs was sold to M/s Morepen Holiday Resorts Ltd., which is now renamed as M/s Blue Coast Infrastructure Ltd. Q. No. 5 Please furnish the details of all the agricultural operations curried on by the M/s Reis Magos Estates Pvt. Ltd., prior to its sale to M/s Morepen Holiday Resorts Ltd., which is now renamed as M/s Blue Coast Infrastructure Ltd. Ans. The above land which is sold is sloppy and terrain is hilly. Approximately in the year 1995-96, this land was converted into settlement Zone for the residential purpose. Have not carried out any agricultural operation at any lime on the above land which is sold to M/s Morepen Holiday Resorts Ltd., which is now renamed as M/s Blue Coast Infrastructure Ltd.. We have sold the converted land along with all the conversion approvals to M/s Morepen group. Q. No. 6 Have you claimed any exemption on the profit from sale of land to M/s Morepen Group. Ans. Now we have declared the profit on the sale of above land at Reis Magos as business Income and paid tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax act was carried out at the premises of the assessee during the course of which some documents regarding the sale of land by the assessee M/s. Delanco Home Resorts Private limited have been found. The assessing officer, accordingly, through this letter called for information regarding the above aforesaid sale deed asking the assessee to furnish the date of purchase and the name of party from whom the land was purchased, the area of the land, the copy of the sale deed, amount of sale consideration received, whether any capital gains tax has been paid in respect of the aforesaid sale transaction and further the relevant documents like income tax return, P&L account, balance sheet etc. along with other related details and information. The assessee vide letter dated 04/03/2010 replied to the queries raised by Assessing Officer, whereby, it was explained that the land in question being rural agricultural land not falling in the definition of capital asset as defined u/s 2(14) of the Act, and hence, the income earned from the sale of said land was not exigible to capital gains tax. Hence, no capital gains tax had been paid. A certificate from the office of Talathi of Reis Mago ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. on 9.4.2007 by way of registered sale deed for a consideration of Rs. 60,00,00,000. As it is gathered, that you have not paid the tax on capital gain on the sale of the said land. It was claimed by you that it was an agricultural land and the profit on the sale of the above land are exempt. However, you have not been able to substantiate your claim of the sale deed the above land falls. under S2 development zone as per the Master development plan of Goa and the above land is approved for residential purposes. The land is situated with in four kilometres of the Panaji municipality and is in a developed area. The provisions of Section 45 of the Income Tax Act 1961 are attracted in your case since the sale of this land amounts to transfer of capital assets. As per section 2(14) of the Income Tax Act 1961, capital asset has been defined as "Capital asset means property of any kind held by an assessee whether or not connected with his business or profession, but does not include-..........................(iii) agricultural land in India, not being land situate- (a) in any area which is comprised within the jurisdiction of a municipality (whether known as a municipality, mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the seller nor the buyer of the above land are agriculturalists. In view of the above discussion, you are hereby required to showcause why the claim of exemption be not rejected and the capital gains be computed as under for the A.Y. 2008-09. Sale consideration 60,00,0,000 Less indexed cost of the land 10,73,60,000*551/426 13,88,62,347 Long Term Capital Gains 476,11,37,653 Your case is fixed for hearing on 18.10.2010. Sd/- (SHASHI SAKLANI) Dy. Director of Income-tax (Inv.) Shimla" 10. The assessee vide its letter dated 13/10/2010 replied to the enquiries and doubts raised by Deputy Director of Income tax (Inv.), H.P., Shimla. The assessee in support of its claim also furnished copies of the official land revenue records. No document has been brought on the file to show that if any further action was taken in respect of the matter by Deputy Director of Icome Tax (Inv.), H.P., Shimla. However, thereafter the Assessing officer on 08/05/2012 recorded the reasons for reopening of the assessment mentioning the same grounds that have been mentioned in detail in the letter dated 30/09/2010 of the Deputy Director of Income tax (Inv.), H.P., Shimla. From the ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestigation carried out by him in respect of the matter. However, the assessing officer in the reasons recorded simply picked up the contents of the letter dated 30/09/2010 even without making any reference of the said letter. Under the circumstances, it cannot be said that the assessing officer had reasons to believe that the income of the assessee has escaped assessment. Without meeting with the reply and explanation of the assessee in respect of the matter as well as with the report/opinion of his predecessor as well that of the Deputy Director of Income Tax ( Inv.), H.P., Shimla, the assessing officer simply reopened the assessment, which action in our view, neither can be held to be legally valid nor justified. As per the provisions of section 147 of the Act, the AO is authorized to reopen the assessment proceedings, if he has reason to believe that any income chargeable to tax has escaped assessment. The Courts of law have time and again held that such a reason to believe that the income of the assessee has escaped assessment should be based on some tangible material which comes to the knowledge of the AO. An assessment cannot be reopened under section 147 of the Act on the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not mentioning a word about reports thereof of the concerned officers, proceeded to reopen the assessment on the same premise. The Assessing Officer, fully knowing that if he will rely upon those proceedings, he will have to meet and discard the reply and explanations of the assessee and also the reports, if any, given by his predecessor and by the concerned investigation authorities and under the circumstances his action of reopening might not pass the test of 'reasons to believe', hence, he skipped the entire episode of earlier proceedings, based his reasons for reopening of the assessment on the alleged information received from DCIT, central circle, Panaji, which even , as discussed above, does not support the reasoning given by the AO. When the very reasons on the basis of which the reopening, allegedly , could not form the basis of forming the belief by the AO that the income of the assessee had escaped assessment, the consequential reassessment order formed by the AO u/s 147 of the Act is illegal and the same is accordingly quashed. Grounds No.3 to 7:- 11. Though, we have quashed the reassessment order as per our adjudication on the issue of validity of reopening of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a construction /development company and that the land in question was not purchased with an intention to carry out agricultural activities seems to be true, however, this fact in itself, in our view, is not sufficient to hold that the land was not an agricultural land. The assessee has proved on the file with sufficient documents in the shape of revenue records that the land till date has been classified as Orchard Zone. Even when the earlier owner in the year 1994 had applied for change of user of land from agriculture to residential, an actual survey at site was carried out by the 'Land Revenue Authorities' who reported that the land in question was a mixed garden. Not an iota of evidence has been pointed out to show that the nature of land in question has ever been changed either by the earlier purchaser or by the assessee. Merely because permission for change of user was granted by the village Panchayat or the Land Revenue Authorities, that itself is not sufficient to classify the land as residential land until and unless the nature and user of the land is actually changed by an overt activity. Though the permission for change of user was granted and renewed from time to time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee duly explained to the lower authorities that the total expenditure incurred by the assessee on the aforesaid activity was almost equal to the income earned from the agricultural activity. The assessee also produced the relevant bills and vouchers to show that it had sold the fruit crops in the local market. In our view, merely because the assessee did not show positive income from the agricultural activity that itself is not enough to hold that the assessee did not carry out any agricultural activity. The assessee has produced evidence on the file that it did not change the nature of the land, continued and developed the orchard, employed two employees for the development and maintenance of the orchard and also produced the evidence of expenditure and income on the said activity. Merely because the payments received were in cash, that itself, in our view, can not be a reason to discard that evidence. As it is generally known that in horticulture sector where the crops are generally sold to private parties in the market, the payments and receipts on the sale of crops by the farmers is normally done in cash. The fact that agricultural operation did not result in surplus an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether he has taken along any official of the Income tax department at Goa?; whether he had met any government official or other respectable person to prove the veracity and truthfulness of his claim? Even the assessing officer has not denied the claim of the assessee that the land in question till date was an orchard and its nature has not been changed. The assessee has proved beyond doubt not only the nature and classification of the land being an orchard and filing within the definition and scope of an agricultural land and further that it has been situated at a distance of more than 10 km from the Municipal limits of Panaji. The assessing officer in the assessment order has himself mentioned that he has not taken into consideration the motorable or pucca road to measure the distance of the land in question from municipal limits of Panaji. He has mentioned that the approach by road would be an erroneous way to compute such distance. However, the law has been settled in this respect. Although, an amendment has been brought to the relevant provisions of section 2(14) of the Income tax Act with effect from 01/04/2014, whereby, it has been provided that the aerial distance from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thorities that the earlier purchaser has not claimed the said land as agricultural land not falling in the definition of capital asset is concerned, it is to be noted that Reis Magos Estate Pvt. Ltd. has not paid any capital gains tax on the sale of the said land to the assessee. The said seller has returned the income from the above sale of land as business income, which means that the said company has treated the land as stock in trade and not as an investment or a capital asset. The question of exemption from capital gains tax would have arisen, if the previous owner would have treated the said land as an investment asset and not as stock in trade. Further, even though the said company did not continue to maintain and develop the land as orchard for the purpose of earning agricultural income, yet, the fact on the file is that it even did not alter its character. If the previous owner did not carry out agricultural activity on an agricultural land, however did not alter or change its nature and character, but the subsequent owner of land starts the agricultural activity on the said land, under the circumstances, it can be safely held that the land remains the agricultural land an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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