2014 (11) TMI 265 - AT - Income Tax

Tribunal upholds Income Tax jurisdiction, deems assessment reopening valid. Land value split between agricultural & capital asset.

Income Tax Officer Versus Smt. Shama Nirdoshkumar Pai

Income Tax Officer Versus Smt. Shama Nirdoshkumar Pai - TMI Issues Involved:1. Jurisdiction under Section 147 of the Income Tax Act.2. Validity of reasons for reopening the assessment.3. Adoption of fair market value of agricultural land.4. Classification of land as agricultural land or capital asset.Issue-wise Detailed Analysis:1. Jurisdiction under Section 147 of the Income Tax Act:The Assessee argued that the Assessing Officer (AO) erred in assuming jurisdiction under Section 147 without fulfilling the jurisdictional conditions. The Tribunal referred to the Supreme Court decision in ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 291 ITR 500 (SC), which stated that processing a return under Section 143(1) is not an assessment and that the AO can initiate action under Section 147 if there is 'reason to believe' that income has escaped assessment. The Tribunal concluded that the AO had the jurisdiction to reassess the income as the return was only processed under Section 143(1) and not assessed under Section 143(3). Therefore, the proceedings under Section 147 were valid.2. Validity of reasons for reopening the assessment:The Assessee contended that the AO did not have valid reasons to believe that income had escaped assessment. The Tribunal noted that the AO must have 'reason to believe' based on relevant material, which need not conclusively prove the escapement of income at the initiation stage. The Tribunal emphasized that the sufficiency of reasons cannot be questioned if there is material to form the 'reason to believe.' The Tribunal found that the AO had relevant material and upheld the reopening of the assessment.3. Adoption of fair market value of agricultural land:The Assessee challenged the AO's adoption of the fair market value of the agricultural land sold during the year as of 1st April 1981 at Rs. 5 per sq. meter. The Tribunal noted that this issue was not examined and adjudicated by the CIT(A). Therefore, the Tribunal restored this issue to the file of the CIT(A) for a fresh finding after providing the Assessee with a proper opportunity to present their case.4. Classification of land as agricultural land or capital asset:The core issue was whether the land sold by the Assessee was agricultural land and thus not a capital asset under Section 2(14) of the Income Tax Act. The Tribunal referred to various judicial decisions and the definition of 'agricultural land' under Section 2(14). It was observed that the land must be cultivable or capable of agricultural operations. The Tribunal personally visited the land and found that most of it was hilly, rocky, and not cultivable, although part of the land had trees and was used for dry crops. The Tribunal concluded that only the portion of the land with trees (approximately 1/5th of the total area) could be considered agricultural land, while the rest (4/5th) was a capital asset. Consequently, the AO was directed to compute the capital gains on the transfer of 4/5th of the land as a capital asset.Conclusion:The Tribunal dismissed the Assessee's grounds challenging the jurisdiction under Section 147 and the validity of reasons for reopening the assessment. The issue of fair market value was remanded to the CIT(A) for fresh consideration. The land was partly classified as agricultural (1/5th) and partly as a capital asset (4/5th), with directions to the AO to compute capital gains accordingly. The appeal filed by the Revenue was partly allowed, and the Cross objection filed by the Assessee was partly allowed for statistical purposes.