Tribunal orders reassessment due to income escape, sets land value at Rs. 900/sq.m.

The tribunal upheld the reopening of the assessment due to valid reasons to believe income had escaped taxation. However, it directed the assessing officer to adopt a fair market value of Rs. 900 per sq. meter for the land, as determined by the CIT(A) in an earlier order, rather than the initially assessed Rs. 2,000 per sq. meter.

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Issues Involved:
1. Reopening of assessment.
2. Determination of long-term capital gain.
3. Working of capital gain.

Detailed Analysis:

1. Reopening of Assessment:
The assessee challenged the reopening of the assessment, arguing that no income had escaped assessment and that the reopening was based on reappraisal of the notes attached to the return of income, without new material. The assessing officer had noticed from the computation of income that the assessee transferred non-agricultural land to a partnership firm without disclosing any long-term capital gain. The officer believed there was underreporting of income from long-term capital gain amounting to Rs. 82,66,535. The tribunal found that the assessing officer had valid reasons to believe that income chargeable to tax had escaped assessment, justifying the reopening. Thus, the appeal on this issue was dismissed.

2. Determination of Long-Term Capital Gain:
The assessee had converted agricultural land into non-agricultural land and then into stock-in-trade, which was transferred to a partnership firm as capital contribution. The assessing officer held that this conversion and transfer amounted to a transfer under section 2(47) of the Income Tax Act, liable for long-term capital gain tax. The officer calculated the fair market value of the land at Rs. 2,000 per sq. meter, resulting in a capital gain of Rs. 83,23,674. The CIT(A) initially adjusted the value to Rs. 900 per sq. meter but later sustained the officer's valuation at Rs. 2,000 per sq. meter. The tribunal noted that the officer did not refer the valuation to the Departmental Valuation Officer, which was necessary. Therefore, the tribunal directed the officer to adopt the rate of Rs. 900 per sq. meter as determined by the CIT(A) in an earlier order.

3. Working of Capital Gain:
The assessee argued against the fair market value determined by the assessing officer, stating it should be Rs. 600 per sq. meter based on a registered valuer's report, not Rs. 2,000 per sq. meter. The tribunal observed that the assessing officer relied on the sale of similar land in the vicinity and assumed a 5% increase in fair market value to determine the value at Rs. 2,000 per sq. meter. However, the tribunal found that the officer did not make sufficient efforts to ascertain the actual fair market value and failed to refer the matter to the Valuation Officer. Consequently, the tribunal upheld the CIT(A)'s earlier valuation of Rs. 900 per sq. meter for the land and directed the assessing officer to adopt this rate.

Conclusion:
The appeal of the assessee was partly allowed. The tribunal upheld the reopening of the assessment but directed the assessing officer to adopt the fair market value of Rs. 900 per sq. meter for the land, as determined by the CIT(A) in an earlier order. The order was pronounced in the open court on 12-02-2019.

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