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Facts
The assessee filed a return of income declaring Rs.8,10,450/- with agricultural income. The AO reopened the assessment under Section 147/148 based on an investigation report regarding the sale of 21 plots, alleging non-disclosure of income and classifying the sale as an adventure in the nature of trade.
Held
The Tribunal held that the reopening of the assessment under Section 147/148 was not justified due to lack of tangible material and non-application of mind by the AO. The CIT(A) had rightly allowed the assessee's appeal, quashing the reopening and assessment.
Key Issues
Whether the reopening of assessment under Section 147/148 was based on valid grounds and sufficient tangible material. Whether the sale of plots constituted adventure in the nature of trade or a capital gain.
Sections Cited
147, 148, 143(2), 142(1), 271(1)(b), 139, 139(1), 54, 69A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI.LAXMI PRASAD SAHU & SHRI. SOUNDARARAJAN K
Per Laxmi Prasad Sahu, Accountant Member :
This appeal is filed by the Revenue against the Order passed by the learned CIT(A) vide DIN and Order No.ITBA/NFAC/S/250/2024- 25/1073857521(1) dated 28.02.2025.
Briefly stated the facts of the case are that assessee filed return of income on 31.03.2018 declaring income of Rs.8,10,450/-. As per the computation of income, assessee has disclosed agricultural income of Rs.4,75,624/-. The jurisdictional AO recorded the reason for issue of notice under section 148 of the Act and after taking due approval from the competent authority issued notice under section 148 of the Act on 31.03.2021. The reason for reopening assessment is as under:
“2. During the year under consideration, the case was re-opened for the A.Y 2016-17 after recording reasons U/s. 147 of the Act after approval of competent authority. Notice u/s 148 of the Act was issued on 31/03/2021 by the Jurisdiction Assessing Officer (JAO) and duly served upon the assessee through e-mail. The assessee has filed Return of Income on 24/04/2021against the Notice issued U/s. 148 of the Act. Therefore Notice u/s 143(2) of the Act was issued on 14/09/2021. Thenafter, the case has been received under faceless assessment scheme on 11/11/2021. Therefore detailed questionnaire was issued to the assessee U/s. 142(1) of the Act vide dated 07/12/2021. The assessee has not furnished his reply to the notices issued U/s. 142(1) dated 07/12/2021of the Act. Reminder U/s. 142(1) of the Act has been issued to the assessee on 05/01/2022 and asked assessee to furnish the details of the case on 13/01/2022 but the assessee has also not replied. Therefore, final opportunity U/s. 142(1) of the Act has been given to the assessee on 10/02/2022 . By seeing the non-compliance attitude of the assessee, the case was marked as non-responsive on Insight Portal on 10/02/2022 and request was made to the Verification Unit (VU) to serve the notice to the assessee. The report of the VU received on 11/02/2022 and from the tracking number EK893582798IN of speed post, it was found that the notices u/s 142(1) were served to the assessee on 16/02/2022. As the assessee has been not furnished the reply, penalty U/s. 271(1)(b) for non compliance is initiated.”
In pursuance to notice under section 148 of the Act, assessee filed return of income on 24.04.2021 which was same as original return under section 139 of the Act. Subsequently, other statutory notices were issued to the assessee but there was no response from the assessee’s side and notices were served to the assessee as per the verification unit. Thereafter on 02.03.2022 assessee filed detailed submissions and objected for reopening of the case. The same has been incorporated by the AO in his Order and the objection filed by the assessee was disposed off on 06.03.2022 and further notice under section 142(1) of the Act was issued on 14.03.2022. In pursuance to notice under section 142(1) of the Act which is quoted in the Assessment Order dated 14.03.2022, assessee did Page 3 of 8 not furnish any reply. However, assessee has also furnished 7 sale deeds for 12 plots with the sale consideration value different in some plots and vary from the information uploaded by the DDIT (Inv), Bellary on the basis of which the case of the assessee was reopened. Further, from the information uploaded by the DDIT (Inv.), Bellary, assessee has sold 21 plots each average amounting to Rs.6,1,000/- totaling to Rs.1,37,97,000/- and market value of each plot amounting to Rs.16 lakhs each for 21 plots which comes totaling to Rs.3,36,00,000/- as under:
Page 4 of 8 4. However, as per the information uploaded by the DDIT (Inv.), Bellary, total 21 plots have been sold by the assessee. The sale consideration amount of Rs.6,21,000/- each and the market value of each plot is Rs.16 lakhs. What has been submitted by the assessee is only sale deeds. The sale deeds are behind numbers list 21 deeds were excluded by the assessee whereas details of 12 sale deeds have been submitted. What has been submitted by the assessee is value of plots in the records of stamp value authority. Such value is for the purpose of determination of stamp duty payable. However, the law is settled for the immovable property transactions. Various judicial forums of the country have held that “on money’ is intrinsic part of any immovable property. The AO noted that the rate depicted by the assessee is never said to be reasonable. On the other hand, the investigation report has subsequently rule the actual value of the property. Thus, the explanation submitted by the assessee can never be relied on. The Ao relied on the judgment in the case of CIT vs. Sohan Khan reported in (2008) 304 ITR 194 (Raj). He further noted that the entire receipt of Rs.3,36,00,000/- was treated as unexplained income of the assessee from the sub -ploting and selling of plots during the year. The selling of plots during the year under consideration comes under the adventure in the nature of trade and is liable to be taxed under business head. Thirdly, the assessee has clear intention to conceal these transactions. Even she had capital gain. She ought to have shown the same in the return of income filed under section 139(1) of the Act. The claim that assessee is eligible for deduction under section 54 of the Act is also not supported by any evidence. Though, however, in any case, assessee is not eligible for the same as this is adventure in the nature of trade. The deduction claimed by the assessee was also denied to the assessee and Rs.3,36,00,000/- was treated as unexplained income under section 69A of the Act.
Page 5 of 8 5. Aggrieved from the above Order, assessee filed appeal before the learned CIT(A). The learned CIT(A), after considering the submissions of the assessee, allowed appeal observing as under:
5. The appellant has challenged the appeal on technical as well as on merits. I find following infirmities from reasons of reopening of the assessment i. The JAO blindly relied upon investigation report of the DDIT (Inv), Ballari. ii. The appellant was not having any document in his possessionin support the reasons recorded for reopening of the assessment. iii. The reasons recorded were vaguely. iv. The JAO recorded that the appellant did not disclose any capital gain in the return of income filed whereas the return of income filed by the appellant clearly shows Long term Capital Gain of Rs.7,29,499/- v. No proper enquiries were conducted before recording the reasons for reopening of the assessment by the JAO. vi. In the investigation report of the DDIT (Inv), Ballari, the rate of sale per plot was considered at Rs.6,57,000/- which was considered by the JAO while reopening of the assessment whereas the plots were of different sizes and were sold at different rates. vii. In the investigation report of the DDIT (Inv), Ballari, the market rate of each plot sold was considered at Rs.16,00,000/- which was considered by the JAO while reopening of the assessment whereas in each sale deed it has been clearly mentioned that the market value of the plot under sale does not exceed the sale consideration of the respective plots and accordingly stamp duty is paid. Neither there was any evidence available with the JAO at the time of reopening of the assessment nor any such evidence was brought on record subsequently. All these facts clearly shows that while reopening of the assessment, there was absolute non application of mind by the JAO, there was no tangible material available with the JAO, the JAO recorded incorrect facts, etc. In the case of CIT Vs. Kelvinator of India Ltd., Hon’ble Supreme Court has held that “after substitution of section 147 by Direct Tax Laws (Amendment) Act, 1987, concept of 'change of opinion' must be treated as an in-built test to check abuse of power by Assessing Officer and the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment; reasons must have a live link with formation of belief . In the present case, the JAO was not having any tangible material in his Page 6 of 8 possession to come to conclusion that there is escapement of income from assessment. 5.1 In view of the above discussion, impugned reopening of the assessment is unsustainable in law, so also, the assessment order passed by the AO is also notsustainable on facts and accordingly, both the proceedings i.e. the reopening of the assessment and assessment orders passed subsequently are quashed.
In the result, the appeal is allowed.”
6. Aggrieved from the above Order, revenue filed appeal before the Tribunal. The learned DR strongly supported the Order of the AO and contested that in the income tax department there is investigation wing and has conducted enquiry regarding financial transactions which are not reported in the regular return filed by the assessee. Accordingly, the investigation wing observed that the assessee has sold 21 plots @ Rs.16 lakhs per plot. However, the assessee has not disclosed the sales transactions in true manner. Even the entire sale deeds were not submitted during the course of assessment proceedings. Only 7 sale deeds are furnished. The rate is also different for plot. The AO has rightly framed assessment under section 147 of the Act and treated the sale receipts as adventure in the nature of trade as per the judgment of Hon’ble Rajasthan High Court relied on by the AO. Therefore, he submitted that the Order of the AO should be upheld.
On the other hand, learned AR relied on the submissions made before the AO as well as before the learned CIT(A) and he strongly contested that the learned CIT(A) has rightly allowed the appeal of the assessee observing that initiating proceeding under section 147/148 of the Act is not correct, the Revenue had no tangible materials. The sale deed produced by the assessee are proof of the purchase and sales transactions carried out by the purchaser and sellers but the department had no any credible evidence to prove that the Page 7 of 8 assessee has received any “on money” from the buyer except report furnished by the investigation wing. Therefore, the entire proceedings initiated by the AO under section 147/148 of the Act is bad in law. He further submitted that the AO is not correct to hold that sales receipts are in the nature of adventure of trade and comes under the business of the assessee. After demise of the late M. Eranna, the assets and plots developed by the demised person were transferred to the legal heirs as capital asset. Accordingly demised legal heirs are not in the business and assets received is a capital asset and the assessee has shown gain in the computation of income which has been shown in the income tax return filed by the assessee. The learned CIT(A) has produced the same in his Order at Page No.2 wherein it is clearly mentioned long term capital gain of Rs.7,29,499/-. Accordingly, learned CIT(A) has examined the issue indetail. After examining the issue in detail, has rightly allowed appeal of the assessee.
Considering the submissions, the case of the assessee was reopened under section 147/148 of the Act on the basis of the information received from investigation wing, Bellary, and the AO has issued notice u/s148 without verifying the report of the investigation wing Bellary and reopening is only on the basis of investigation report received. THEe AO has relied to issue notice under section 148 of the Act on the basis of report of the DIT (Inv.), Bellary. But he has not independently examined the veracity of the report submitted by the DIT (Inv.). The learned CIT(A) has rightly allowed appeal of the assessee on this ground and in support of our decision we rely on the judgment of Hon’ble Apex Court in the case of CIT Vs. Kelvinator India Ltd., reported in (2010) 187 Taxman 312 (SC).
Respectfully following the above judgment, we hold that the initiation of proceeding under section 147/148 of the Act is not correct. Further, the finding of the learned CIT(A) regarding issue on merits that capital asset was Page 8 of 8 received by the legal heirs after demise of late M. Eranna has not been converted into the stock by the legal heirs and the assessee has shown capital gain on this income. The disputed amount does not come under the head of business income. Therefore, on this point, the business treated by the assessee is also not correct. Accordingly, we do not find any infirmity in the Order of the learned CIT(A).
In the result, appeal filed by theRevenue is dismissed.